Overincome Families Resided in Public Housing Units

Below is a raw (and likely hideous) rendition of the
original report.
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Office of Public and Indian Housing,
Washington, DC
Overincome Families Residing in Public Housing Units
Office of Audit, Region 3 Audit Report Number: 2015-PH-0002
Philadelphia, PA July 21, 2015
To: Milan M. Ozdinec, Deputy Assistant Secretary for Public Housing and Voucher
Programs, PE
//signed//
From: David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
Region, 3AGA
Subject: Overincome Families Resided in Public Housing Units
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of HUD’s policies governing overincome families
residing in public housing units.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at 215-
430-6730.
Audit Report Number: 2015-PH-0002
Date: July 21, 2015
Overincome Families Resided in Public Housing Units
Highlights
What We Audited and Why
We audited the U.S. Department of Housing and Urban Development’s (HUD) public housing
program. We conducted the audit as part of our annual audit plan and a congressional request.
Specifically, Congressman David P. Roe requested that we review the number of families residing
in government-subsidized housing whose income exceeded current income limits. Our audit
objective was to determine the extent to which HUD-subsidized public housing units were
occupied by overincome families and evaluate the impact of HUD policies.
What We Found
Public housing authorities provided public housing assistance to as many as 25,226 families
whose income exceeded HUD’s 2014 eligibility income limits. Of these 25,226 families, 17,761
had earned more than the qualifying amount for more than 1 year. HUD regulations require
families to meet eligibility income limits only when they are admitted to the public housing
program. The regulations do not limit the length of time that families may reside in public
housing. However, HUD’s December 2004 public housing final rule gave public housing
authorities discretion to establish and implement policies that would require families with
incomes above the eligibility income limits to find housing in the unassisted market. The 15
housing authorities that we contacted choose to allow overincome families to reside in public
housing. HUD did not encourage them to require overincome families to find housing in the
unassisted market. As a result, HUD did not assist as many low-income families in need of
housing as it could have. We estimate that HUD will pay $104.4 million over the next year for
public housing units occupied by overincome families that otherwise could have been used to
house low-income families. Although it would be reasonable to expect that a minimum number
of overincome families would reside in public housing at any time, HUD can significantly
reduce the number of overincome families that reside in public housing.
What We Recommend
We recommend that HUD direct housing authorities to establish policies to reduce the number of
overincome families in public housing, thereby putting as much as an estimated $104.4 million
to better use by providing those funds to eligible low-income families in need of housing
assistance.
Table of Contents
Background and Objective......................................................................................3
Results of Audit ........................................................................................................5
Finding: Overincome Families Resided in Public Housing Units ............................... 5
Scope and Methodology .........................................................................................12
Internal Controls ....................................................................................................14
Appendixes ..............................................................................................................15
A. Schedule of Funds To Be Put to Better Use ............................................................ 15
B. Auditee Comments and OIG’s Evaluation ............................................................. 16
C. Overincome Families Residing in Public Housing Units Nationwide .................. 24
D. Overincome Families Sorted by Income Greater Than HUD’s 2014 Program
Eligibility Income Limits .......................................................................................... 28
E. Length of Time Overincome Families Had Lived in Public Housing Units ........ 27
F. Overincome Families Compared to Families Waiting for Public Housing
Assistance...…………………………………………………………………………28
2
Background and Objective
The U.S. Department of Housing and Urban Development (HUD) established its public housing
program to provide decent and safe rental housing for eligible low-income families, the elderly,
and persons with disabilities. Nationwide, there are approximately 1.1 million families receiving
public housing assistance in public housing units managed by approximately 3,300 public
housing authorities. HUD’s Public Housing Operating Fund provides operating subsidies to
public housing authorities to assist in funding the operating and maintenance expenses of their
public housing developments.
HUD administers Federal aid to local public housing authorities that manage the housing for
low-income residents at rents they can afford. The authorities use income limits as one of
several factors to determine a family’s eligibility for the program. HUD sets the low-income
limits at 80 percent and very low-income limits at 50 percent of the median income for the
county or metropolitan area in which the household resides. Once a family is accepted into the
public housing program, it may stay in the program as long as it complies with leasing
requirements. Since the demand for housing assistance often exceeds the limited resources
available, long waiting periods are common before a family obtains a public housing unit.
The Quality Housing and Work Responsibility Act of 1998 made significant changes to the
income and rent policies in the public housing program. It gave assisted families the choice of
paying either an income-based rent or a market-based flat rent established by the public housing
authority. Annually, assisted families determine which type of rent they will pay. The income-
based rent can be up to 30 percent of the family’s monthly adjusted household income. The
income-based rent included a ceiling rent component that acted like a flat rent. However, HUD
effectively ended the ceiling rent when it revised its flat rent policy in May 2014 and required
housing authorities to establish flat rents set at no less than 80 percent of the applicable fair
market rent 1 and use them by October 31, 2014, to recertify participating families and admit new
families to the program.
In a letter to the HUD Inspector General, dated October 23, 2013, Congressman David P. Roe
requested that we review the number of families residing in government-subsidized housing whose
income now exceeds the allowable amount that qualifies families for assistance, for the purpose of
understanding how pervasive the problem is and so that Congress can consider any necessary
corrective action.
1
HUD annually estimates fair market rents for 530 metropolitan areas and 2,045 nonmetropolitan county fair market
rent areas.
3
For purposes of this report, we considered a family to be overincome if its annual household
income was greater than HUD’s 2014 qualifying income limits for families applying for
admission to the public housing program.
Our audit objective was to determine the extent to which HUD-subsidized public housing units
were occupied by overincome families and evaluate the impact of HUD policies.
4
Results of Audit
Finding: Overincome Families Resided in Public Housing Units
Public housing authorities provided public housing assistance to as many as 25,226 families
whose annual household income exceeded HUD’s 2014 program eligiblility income limits. Most
of these families had earned more than the qualifying amount for more than 1 year, were not
participating in programs that would allow them to reside in public housing, and occupied units
while many families were waiting for public housing assistance. This condition occurred
because HUD regulations require families to meet eligibility income limits only when they are
admitted to the public housing program. The regulations do not limit the length of time that
families may reside in public housing. Although HUD had given public housing authorities
discretion to establish and implement policies that would require families with incomes above
the eligibility income limits to find housing in the unassisted market, the public housing
authorities that we contacted choose to allow overincome families to reside in public housing.
HUD did not encourage them to require overincome families to find housing in the unassisted
market. As a result, HUD did not assist as many low-income families in need of housing as it
could have. We estimate that HUD will pay as much as $104.4 million over the next year for
public housing units occupied by overincome families that otherwise could have been used to
house eligible low-income families in need of housing assistance. Although it would be
reasonable to expect that a minimum number of overincome families would reside in public
housing at any time, HUD can significantly reduce the number of overincome families that
reside in public housing.
As Many as 25,226 Overincome Families Resided in Public Housing Units
As of July 2014, 2,257 public housing authorities 2 provided public housing rental assistance to as
many as 25,226 families whose annual household income exceeded HUD’s 2014 program
eligibility income limits (see appendix C for details). The family composition of the overincome
families showed that there were
• 6,442 one-person households,
• 8,566 two-person households, and
• 10,218 households of three or more persons.
Of the 25,226 overincome families, 13,388 (53 percent) had income that was up to $10,000
greater than HUD’s 2014 income limits and 11,838 (47 percent) had income that was more than
2
Located in the 50 States, the District of Columbia, Puerto Rico, and the Virgin Islands
5
$10,000 greater than the income limits (see appendix D for details). 3 The following examples
illustrate how excessively some families’ income exceeded the qualifying income limits:
• Case 1 – New York City Housing Authority, New York, NY – The Authority admitted
the family to the program in November 1988, and it had been overincome since at least
2009. As of November 2013, the four-person household’s annual income was $497,911,
while the low-income threshold was $67,100. Three members of the household earned
income. The member with the highest income earned $275,757. In addition, the head of
the household owned real estate that produced $790,534 in rental income between 2009
and 2013. As of July 2014, the family paid an income-based ceiling rent of $1,574
monthly for its public housing unit. According to the Authority, it did not evict this
family from its 3-bedroom unit because its policy does not require it to terminate the
tenancy or evict families solely because they are overincome. The Authority believes
that allowing overincome families to reside in public housing is beneficial because it
shows that participation in the public housing program can help families achieve a more
stable life and the average rent paid by overincome families is greater than that paid by
other low income families.
• Case 2 – Housing Authority of the City of Los Angeles, Los Angeles, CA – The
Authority admitted the family to the program in October 1974, and it had been
overincome since at least May 2011. As of June 2014, the five-person household’s
annual income was $204,784, while the low-income threshold was $70,450. Five
members of the household earned income. The member with the highest income earned
$132,224. As of June 2014, the family paid a flat rent of $1,091 monthly for its public
housing unit. According to the Authority, it did not evict this family from its 4-bedroom
unit because its policy does not require it to evict overincome families because HUD
regulations don’t require it. The Authority claimed that evicting overincome families
would work against HUD’s efforts to deconcentrate poverty in public housing
developments.
• Case 3 – New Bedford Housing Authority, New Bedford, MA – The Authority admitted
the family to the program in January 2003, and it had been overincome since at least
August 2010. As of November 2013, the three-person household’s annual income was
$212,845, while the low-income threshold was $42,950. The member with the highest
income earned $129,789. As of July 2014, the family paid a flat rent of $525 monthly for
its public housing unit. According to the Authority, it did not evict this family from its 2-
bedroom unit because its policy does not require it to evict families solely because they
are overincome. HUD regulations require families to be income eligible only at
admission to the program.
3
HUD sets the low-income and very low-income limits by county or metropolitan area to account for local factors.
Similarly, the amount by which a family is overincome needs to be considered in light of local factors. For example,
a family that is $10,000 over the income limit in New York City is not necessarily in the same situation as another
family that is $10,000 over the income limit in another part of the country.
6
• Case 4 – Oxford Housing Authority, Oxford, NE – The Authority admitted the tenant to
the program in October 2005, and it had been overincome since at least October 2010.
As of April 2014, the single-member household’s annual income was $65,007, while the
low-income threshold was $33,500. Also, this tenant had total assets valued at nearly
$1.6 million, which included stock valued at $623,685, real estate valued at $470,600, a
checking account with a balance of $334,637, and an individual retirement account with a
balance of $123,445. As of April 2014, the tenant paid a flat rent of $300 monthly for the
public housing unit. According to the Authority, it did not evict this tenant from the 1-
bedroom unit because the tenant was income eligible at admission and has not violated
the lease agreement, therefore the Authority has no reason to evict the tenant or terminate
the lease. The Authority also claimed that it has had difficulty fully leasing units in all of
its public housing projects. Leasing a unit to an overincome family is preferable to
having a vacant unit in order to keep a project occupied and viable in the community.
Overincome Families Had Resided in Public Housing Units for Years
Although 7,465 (30 percent) of the 25,226 overincome families had resided in public housing for
less than 1 year, 17,761 (70 percent) had resided in public housing for more than 1 year (see
appendix E for details). Program regulations do not limit the length of time that families may
reside in public housing units. As long as families comply with the terms of their rental
agreements, they may continue to reside in public housing. Families in the public housing
program only have to meet eligibility income limits when they are admitted to the program. In
contrast, HUD’s housing choice voucher program, which provides eligible families assistance in
obtaining rental housing in the private market, has an annual income limit. If a family can afford
to pay an unassisted rent for 180 consecutive days, then the family’s participation in the program
is terminated and the family’s voucher is made available to another eligible family in need of
rental housing assistance. Public housing authorities use an automated system of integrated
income data 4 to conduct periodic recertifications for families participating in both programs,
however, since the public housing program does not have an annual income limit, they do not
use the automated income data as a basis to evict or terminate the tenancies of overincome
families.
Overincome Families Did Not Participate in Programs That Would Allow Them To Reside
in Public Housing
Regulations at 24 CFR (Code of Federal Regulations) 960.261(b) state that public housing
authorities may not evict or terminate the tenancies of a family solely because the family is over
the income limit for public housing if the family has a valid contract for participation in a Family
Self-Sufficiency program 5 or the family received an earned income disallowance. 6 Automated
4
The Enterprise Income Verification system
5
The Family Self-Sufficiency program provides low-income families the opportunity to receive education, job
training, counseling, and other forms of assistance while residing in assisted housing so they can obtain skills
necessary to achieve self-sufficiency.
7
data reported by the housing authorities to HUD showed that only 232 of the 25,226 overincome
families participated in a Family Self-Sufficiency program. The data also showed that 13,670
families did not participate in a Family Self-Sufficiency program. For the remaining 11,324
families, HUD did not have data to show whether they participated in a Family Self-Sufficiency
program because the housing authorities did not enter either a “yes” or “no” answer into the
automated system. HUD did not capture earned income disallowance information in its
automated system. However, none of the files for 25 overincome families reviewed showed that
those families received an earned income disallowance.
Overincome Families Occupied Units While Many Families Waited for Public Housing
Assistance
A sample of 15 public housing authorities with overincome families showed that all 15 provided
public housing assistance to 12,425 overincome families, although they also had 579,890
families on their waiting lists (see appendix F for details).
HUD Did Not Require Overincome Families To Exit the Public Housing Program
Regulations at 24 CFR 960.201(a) require that families meet low-income eligibility requirements
only at admission to the public housing program. The regulations do not limit the length of time
that families may reside in public housing. Paragraph 3-2(a)(5) of HUD’s Public Housing
Occupancy Handbook 7465.1 supports these statements. As long as families comply with the
terms of their rental agreements, they may continue to receive public housing assistance.
However, HUD’s December 2004 public housing final rule gave public housing authorities
discretion to establish and implement policies that would require families with incomes above
the eligibility income limits to find housing in the unassisted market. The final rule was
established so that housing authorities could require overincome families to find housing in the
unassisted market and serve truly low-income families on program waiting lists. Specifically,
the final rule gave public housing authorities flexibility and discretion to establish and implement
policies to address overincome families. The final rule suggested that public housing authorities
establish additional policies that could (1) define appropriate time limits during which
overincome families could remain in public housing; (2) determine the timeframe needed to
execute an eviction notice to the overincome family; (3) exempt eviction of specific classes, such
as elderly persons and persons with disabilities, as long as civil rights laws were not violated;
and (4) consider asset limitations of overincome families in their policies as long as the
limitations met State and local legal requirements. By giving public housing authorities
flexibility and discretion to establish and implement policies to address overincome families
locally, HUD allowed authorities to address overincome families within the context of their own
unique demographic and economic situations.
6
The earned income disallowance allows tenants who have been out of work to accept a job without having their
rent increase right away. It encourages self-sufficiency by rewarding residents who go to work to increase their
earnings.
8
We reviewed the admission and continued occupancy policies of 15 housing authorities 7 and
found that none of the authorities had established and implemented policies to evict overincome
families or reduce the number of overincome families in its programs. The housing authorities
choose to allow overincome families to reside in public housing and explained that there were
several benefits to having overincome families reside in public housing units, such as higher
rental revenue and a reduced concentration of poverty. Also, overincome families were viewed
as role models by the public housing community because they had demonstrated that self-
sufficiency could be achieved. Since regulations and policies did not require housing authorities
to evict overincome families or require them to find housing in the unassisted market,
overincome families continued to reside in public housing units.
HUD Believed That It’s Revised Flat Rent Policy Would Reduce the Number of
Overincome Families in Public Housing
In May 2014, HUD issued Public and Indian Housing Notice 2014-12, which requires public
housing authorities to establish flat rents set at no less than 80 percent of the applicable fair
market rents. Before this policy change, housing authorities generally set flat rent amounts
relatively low compared to the fair market rents. For example, a May 2010 HUD study of rents
and rent flexibility reported that in 2008, housing authorities set about two-thirds of flat rents at
less than half the fair market rent. The Notice requires housing authorities to use the new flat
rents by October 31, 2014, to recertify families receiving public housing assistance and admit
new families to the program and limits rental payment increases to no more than 35 percent
annually. HUD believed that this policy change would reduce the number of overincome
families residing in public housing because rather than pay an increased flat rent for public
housing, the overincome families would choose to spend the additional 20 percent and rent a unit
on the open market. While the revised flat rent policy could reduce the number of overincome
families residing in public housing over time, the immediate impact would be marginal because
rental payment increases are limited to no more than 35 percent annually and it may not prevent
the egregious cases illustrated above. Moreover, the flat rent statute 8 prohibits rents from
creating a disincentive for continued residency in public housing by families who are attempting
to become economically self-sufficient through employment or who have attained a level of self-
sufficiency through their own efforts.
HUD Had a Financial Incentive To Keep Overincome Families in Public Housing
HUD repeatedly objected to our audit on the grounds that the governing statute and regulations
require that public housing authorites not deter overincome families from residing in public
housing. HUD stated that the governing statute and regulations encourage housing authorities to
permit families to remain in public housing once they became overincome. HUD also stated that
housing authorities are required to create rent policies that encourage employment and self-
sufficiency. Further, it stated that housing authorities are obligated to establish admission
policies that promote the deconcentration of poverty and income mixing within public housing
7
Listed in appendix F
8
42 U.S.C. (United States Code) Part 1437a(a)(2)(B)
9
properties. 9 Therefore, to amend policies that would force overincome families to leave public
housing could negatively affect their employment and destabilize properties. Such changes
could result in increased subsidy needs for the program because the rents paid by overincome
families reduce operating subsidies requested by the public housing authorities. HUD claimed
that if all overincome families were removed from the public housing program, it would need to
request nearly $116.5 million more in public housing operating subsidies annually.
We do not expect HUD and the housing authorities to develop policies that would eliminate all
overincome families from public housing. However, creating limits to avoid egregious cases
seems reasonable. While we agree that HUD and the housing authorities need to encourage
families in public housing toward employment and self-sufficieny, and deconcentration of
poverty and income mixing within public housing properties are desireable, it is unclear to what
extent limiting public housing to overincome families negatively affects their employment or
destabilizes properties. Any new policies should allow families sufficient time to become stable
after becoming financially independent before their public housing assistance would be
terminated. Although the reduction in overincome families could increase HUD’s request for
operating subsidies, the loss in additional rents that offset housing authority operating costs
needs to be weighed against the opportunity cost of continuing to deny housing assistance to
eligible low-income families in need of housing assistance.
Conclusion
Public housing authorities provided public housing assistance to as many as 25,226 families
whose income exceeded HUD’s 2014 eligibility income limits. The majority of these families
had earned more than the qualifying amount for more than 1 year. The public housing program
was created to provide affordable housing to eligible low-income families, the elderly, and
persons with disabilities. Although HUD had given public housing authorities discretion to
implement policies that would require families with incomes above the eligibility income limits
to find housing in the unassisted market, the public housing authorities that we contacted choose
to allow overincome families to reside in public housing. As a result, HUD did not assist as
many low-income families in need of housing as it could have. We estimate that HUD will pay
as much as $104.4 million over the next year for public housing units occupied by overincome
families that otherwise could have been used to house eligible low-income families in need of
housing assistance. This estimate represents all overincome families living in public housing
even though we would not expect that any new policies would eliminate all overincome families
from public housing.
Recommendations
We recommend that the Deputy Assistant Secretary for Public Housing and Voucher Programs
9
42 U.S.C. (United States Code) Part 1437n allows public housing authorities to establish and implement income-
mix criteria for the selection of low-income and very low-income residents for units in public housing projects.
10
1A. Direct housing authorities to establish policies to reduce the number of
overincome families in public housing, thereby putting as much as an estimated
$104,417,212 to better use by providing those funds to eligible low-income
families in need of housing assistance.
1B. Reemphasize to all public housing authorities the need to populate the family self-
sufficiency indicator in the Public and Indian Housing Information Center (PIC)
system.
11
Scope and Methodology
We performed our audit work from August 2014 through February 2015 at HUD’s offices
located in Washington, DC, and our offices located in Pittsburgh, PA and Richmond, VA. The
audit covered the period July 2011 to July 2014 but was expanded when necessary.
To accomplish our audit objective, we
• Reviewed the U.S. Housing Act of 1937 and the Quality Housing and Work
Responsibility Act of 1998.
• Reviewed applicable HUD regulations at 24 CFR Parts 903, 960, 966, and 984 and
Federal regulations at 24 CFR Part 5.
• Reviewed applicable guidance contained in HUD Public and Indian Housing Notice
2014-12, HUD’s rule, “PHA Discretion in Treatment of Over-Income Families”, HUD’s
Public Housing Occupancy Handbook and HUD’s Housing Choice Voucher Program
Guidebook.
• Analyzed data contained in HUD’s PIC system.
• Reviewed the tenant files for 25 overincome families residing in public housing units.
• Reviewed 2014 income limits.
• Reviewed the waiting lists and admissions and continued occupancy policies of 15 public
housing authorities. We included the 13 authorities related to the 25 overincome families
whose tenant files we reviewed and added the 2 authorities identified by Congressman
Roe in his request.
We also interviewed public housing authority officials and members of HUD’s public housing
staff.
To achieve our audit objective, we relied on computer-processed data from HUD’s PIC system
to identify overincome families residing in public housing. The data that we used were current
as of July 2014 for all housing authorities. 10 Although we did not perform a detailed assessment
of the reliability of the data, we did perform a minimal level of testing and found the data to be
adequate for our purposes. To assess the reliability of the data, we selected a sample of 25
10
Moving to Work and non-Moving to Work housing authorities
12
overincome families participating in public housing programs at non-Moving to Work housing
authorities based on their income, admission date, and value of assets held by the family. The
families that we selected were either admitted to the program after January 1, 2013, or had more
than $1 million in assets, or had income that was significantly greater than the income limits.
We contacted the associated public housing authorities and requested historical tenant data for
the families for the last 4 years, including income documentation such as wage and earnings
statements. We compared the family’s annual household income to the applicable 2014 income
limit for the family to determine whether it was overincome. We determined that there were
25,228 overincome families residing in public housing units administered by 2,257 public
housing authorities nationwide. Since we found that the family income recorded in PIC was
significantly inaccurate 11 for 2 of the 25 families reviewed, we adjusted the total number of
overincome families residing in public housing units from 25,228 to 25,226. Accordingly, to
conservatively estimate the amount of funds that HUD could put to better use, we reduced
HUD’s estimate of $112.3 million for the total public housing operating funds related to housing
the 25,226 overincome families by 7 percent 12 to compensate for other potential errors in the
universe. This change reduced our estimate of funds that HUD could put to better use to as
much as $104.4 million.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
11
The correct total family income was not greater than the 2014 eligibility income limit for the family.
12
The annual public housing operating funds related to housing the 2 families was $8,096, which was 7 percent of
the $116,841 in annual public housing operating funds related to housing the 25 families reviewed ($8,096 divided
by $116,841 equals 7 percent).
13
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
• Effectiveness and efficiency of operations,
• Reliability of financial reporting, and
• Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:
• Program operations – Policies and procedures that management has implemented to
reasonably ensure that a program meets its objectives.
• Compliance with laws and regulations – Policies and procedures that management has
implemented to reasonably ensure that resource use is consistent with laws and regulations.
• Safeguarding resources – Policies and procedures that management has implemented to
reasonably ensure that resources are safeguarded against waste, loss, and misuse.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:
• HUD lacked effective policies and controls to minimize the number of overincome families
residing in public housing units.
14
Appendixes
Appendix A
Schedule of Funds To Be Put to Better Use
Recommendation Funds to be put
number to better use 1/
1A $104,417,212
1/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an Office of Inspector General (OIG) recommendation is
implemented. These amounts include reductions in outlays, deobligation of funds,
withdrawal of interest, costs not incurred by implementing recommended improvements,
avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
that are specifically identified. In this instance, if HUD implements our recommendation
and reduces the number of overincome families in public housing, housing authorities
will no longer spend HUD’s operating subsidies for overincome families but will instead
spend those funds to house eligible low-income families in need of housing assistance.
Our estimate reflects only the initial year of this benefit and includes all overincome
families even though we would not expect that all would be removed under any new
policies.
15
Appendix B
Auditee Comments and OIG’s Evaluation
Auditee Comments
Ref to OIG
Evaluation
Comment 1
Comment 2
Comment 3
Comment 4
16
Auditee Comments
Ref to OIG
Evaluation
Comment 5
Comment 6
Comment 7
Comment 8
17
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 9
Comment 9
Comment 10
18
Auditee Comments
Ref to OIG
Evaluation
Comment 4
Comments 5,
6 and 7
19
OIG Evaluation of Auditee Comments
Comment 1 HUD is concerned with our position that funds could be put to better use,
primarily because the program statute and regulations encourage public housing
authorities to not deter overincome families from living in public housing.
However, the public housing program was created to provide affordable housing
to eligible low-income families, the elderly, and persons with disabilities. HUD
did not assist as many low-income families in need of housing as it could have.
We estimate that HUD will pay as much as $104.4 million over the next year for
public housing units occupied by overincome families that otherwise could have
been used to house eligible low-income families in need of housing assistance.
Comment 2 HUD agrees with the statements of the 15 housing authorities that we contacted
during the audit that there are positive social benefits from having families with
varying income levels residing in the same property. As stated in the audit report,
the public housing program was created to provide affordable housing to eligible
low-income families, the elderly, and persons with disabilities. We agree that
deconcentration of poverty and income mixing within public housing properties
are desireable, however, HUD did not provide any quantitative evidence to
demonstrate the positive social benefits from having overincome families residing
in public housing.
Comment 3 HUD believes that our methodology to estimate the subsidy cost of housing
overincome families is seriously flawed. We disagree. Our methodology used
data provided by HUD to estimate the amount of subsidies HUD provided for the
25,226 overincome families.
Comment 4 HUD believes that the governing statute and regulations encourage public housing
authorities to permit families to remain in public housing once they become
overincome. Specifically, public housing authorities are required to create rent
policies that encourage employment and that do not create a disincentive for
continued residency by families who are attempting to become self-sufficient or
who have attained a level of self-sufficiency through their own efforts. Further,
the authorities are obligated to establish admissions policies that promote de-
concentraion of poverty and income mixing within public housing properties.
As stated in the audit report, program regulations do not limit the length of time
that families may reside in public housing units. As long as families comply with
the terms of their rental agreements, they may continue to reside in public
housing. They only have to meet eligibility income limits when they are admitted
to the program. Regulations at 24 CFR 960.261(b) prohibit public housing
authorities from evicting or terminating the tenancies of a family solely because
the family is over the income limit for public housing if the family has a valid
contract for participation in a Family Self-Sufficiency program or the family
received an earned income disallowance. The audit evidence presented in the
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audit report showed that only a small number of families participated in a Family
Self-Sufficiency program and none received an earned income disallowance.
HUD’s December 2004 public housing final rule gave public housing authorities
discretion to establish and implement policies that would require families with
incomes above the eligibility income limits to find housing in the unassisted
market. The final rule was established so that housing authorities could require
overincome families to find housing in the unassisted market and serve truly low-
income families on program waiting lists. By giving public housing authorities
flexibility and discretion to establish and implement policies to address
overincome families locally, HUD allowed authorities to address overincome
families within the context of their own unique demographic and economic
situations. However, none of the 15 housing authorities that we reviewed had
established and implemented policies to evict overincome families or reduce the
number of overincome families in its programs. The housing authorities choose
to allow overincome families to reside in public housing without any limitations.
Comment 5 HUD is concerned that amending policies to force overincome families to leave
public housing could negatively affect their interest and full participation in
achieving self-sufficiency. We agree that amending policies to force overincome
families to leave public housing could negatively affect the interest and full
participation to achieve self-sufficiency of some overincome families. However,
we do not expect HUD and the housing authorities to eliminate all overincome
families from public housing. As shown in the audit report, there are families
living in public housing who are clearly self-sufficient. Any new policies should
allow families sufficient time to become stable after becoming financially
independent before their public housing assistance would be terminated.
Comment 6 HUD stated that forcing families to leave public housing could impact their ability
to maintain employment if they are not able to find suitable housing in the
neighborhood; it may be more difficult for families with children to find
affordable child care; it may impact school-aged children’s learning if they are
forced to change schools during a school year; and there are many potential
factors that determine why overincome families may choose to stay in public
housing rather than to move to unassisted housing. We agree that these issues
may affect overincome families, as they do unassisted families, but HUD
provided no quantitative evidence to demonstrate that these issues affect their
decisions to stay in public housing. While these issues present challenges to the
overincome families they may pale in comparison to the challenges facing the
families, including children, waiting for housing assistance. Because public
housing authorities have flexibility and discretion to establish and implement
policies to address overincome families locally, they can address overincome
families within the context of their own unique demographic and economic
situations including these issues.
21
Comment 7 HUD supports the public housing authorities who expressed their belief that
overincome families are “model tenants” that serve as role models for other
families regarding employment and self-sufficiency activities, and their concern
that forcing these tenants to leave public housing could destabilize properties.
HUD provided no quantitative evidence to support their belief and their concern.
In our opinion, overincome families can serve as role models for other families
regarding employment and self-sufficiency activities when they leave the public
housing program. The goals of employment and self-sufficiency include financial
stability and independence. To a lesser or greater extent, participation in the
public housing program contributed to the four overincome families discussed in
the audit report becoming financially stable and able to live independently. When
overincome families leave the public housing program they create opportunities
for other families to be assisted and hopefully achieve financial stability and
independence.
Comment 8 HUD believes that flat rents will reduce the number of overincome families but,
due to the statutory provision limiting flat rent increases, would delay the full
impact of the statutory provision for some families by up to 3 years. Eventually
families will pay the full rent increase which will result in some families choosing
to rent unassisted units. As stated in the audit report, while the revised flat rent
policy could reduce the number of overincome families residing in public housing
over time, the immediate impact would be marginal because the annual rental
payment increases are limited and it may not prevent the egregious overincome
cases discussed in the audit report.
Comment 9 HUD is concerned that our methodology is inappropriate for an analysis of funds
to be put to better use in the public housing program because we do not employ
the operating fund formula in our analysis, and therefore it does not accurately
reflect the cost to house overincome families. We disagree. Our methodology to
estimate the amount of subsidies provided for overincome families was based on
per unit per month project eligibility amounts for the overincome families
provided by HUD. We used these figures to estimate the subsidy that HUD will
provide for the public housing units occupied by the overincome families. The
operating fund formula offsets a housing project’s operating subsidy eligibility
amount by the rental income the public housing authority expects to receive for
the project. Therefore, the rents paid by overincome families are considered in
the formula before the per unit month project eligibility amount is calculated. In
the audit report, we acknowledge HUD’s analysis and it’s determination that if all
overincome families were removed from the public housing program, it would
need to request nearly $116.5 million more in public housing operating subsidies
annually. Although the reduction in the number of overincome families could
increase HUD’s request for operating subsidies, the loss in additional rents that
offset housing authority operating costs needs to be weighed against the
opportunity cost of continuing to deny housing assistance to eligible low-income
families in need of housing assistance. Therefore, we estimated that HUD will
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pay as much as $104.4 million over the next year for public housing units
occupied by overincome families that otherwise could have been used to house
eligible low-income families in need of housing assistance.
Comment 10 HUD believes that the report over-emphasizes the problem because overincome
households represent 2.6 percent of all public housing households. Although
25,226 overincome families is a small percentage of the approximate 1.1 million
families receiving public housing assistance, we did not find that HUD and public
housing authorities had taken or planned to take sufficient steps to reduce at least
the egregious examples of overincome families in public housing and therefore it
is reasonable to expect the number of overincome families participating in the
program to increase over time. Neither HUD nor the 15 housing authorities that
we contacted during the audit provided any quantitative data to demonstrate that
overincome families were leaving the public housing program. The problem is
not over-emphasized to as many as 25,226 families in need of housing that
continue to wait for assistance because overincome families choose to remain in
public housing rather than find housing in the unasssited market.
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Appendix C
Overincome Families Residing in Public Housing Units Nationwide
Sequential Number of
number Location overincome families
1 New York 10,903
2 Puerto Rico 1,219
3 Texas 1,056
4 Alabama 811
5 New Jersey 755
6 Pennsylvania 750
7 Louisiana 682
8 Georgia 666
9 Illinois 637
10 Massachusetts 621
11 Kentucky 571
12 Tennessee 545
13 California 505
14 North Carolina 405
15 Ohio 384
16 Missouri 366
17 Mississippi 341
18 Arkansas 332
19 Florida 297
20 Oklahoma 288
21 Michigan 243
22 South Carolina 243
23 Minnesota 229
24 Wisconsin 213
25 Indiana 172
26 Virgin Islands 160
27 Nebraska 157
28 Maryland 156
29 Kansas 152
30 Virginia 147
31 Connecticut 144
32 West Virginia 140
33 New Mexico 98
34 Rhode Island 87
35 Iowa 85
24
Sequential Number of
number Location overincome families
36 Washington 81
37 North Dakota 70
38 Washington, DC 69
39 Arizona 60
40 Maine 60
41 Colorado 54
42 Oregon 50
43 Montana 33
44 Alaska 27
45 New Hampshire 25
46 Vermont 25
47 Nevada 24
48 Delaware 20
49 Hawaii 20
50 South Dakota 17
51 Wyoming 13
52 Idaho 11
53 Utah 7
Total 25,226
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Appendix D
Overincome Families Sorted by Income Greater Than HUD’s 2014 Program Eligibility
Income Limits
13,388
$1 - $10,000
8,172 $10,001 - $30,000
$30,001 - $50,000
$50,001 - $70,000
$70,001 - $90,000
$90,001 +
2,293
288 792
293
Number
Percentage
Category of
of total
families
Up to $10,000 greater than the income limits 13,388 53%
Between $10,001 and $30,000 greater than the income limits 8,172 33%
Between $30,001 and $50,000 greater than the income limits 2,293 9%
Between $50,001 and $70,000 greater than the income limits 792 3%
Between $70,001 and $90,000 greater than the income limits 293 1%
$90,001 or more greater than the income limits 288 1%
Totals 25,226 100%
26
Appendix E
Length of Time Overincome Families Had Lived in Public Housing Units
Families
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-
<1 1-2 3-4 5-6 7-8 9+
year years years years years years
Number of Percentage
Category
families of total
Lived in public housing and exceeded HUD’s
7,465 30%
2014 eligibility income limits for less than 1 year
Between 1 and 2 years 5,827 23%
Between 3 and 4 years 3,435 13%
Between 5 and 6 years 3,515 14%
Between 7 and 8 years 3,742 15%
9 years or more 1,242 5%
Totals 25,226 100%
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Appendix F
Overincome Families Compared to Families Waiting for Public Housing Assistance
Number of Number of
Sequential overincome families on
number Public housing authority
families waiting list
1 New York City Housing Authority, NY 10,250 302,079
2 Puerto Rico Public Housing Administration 1,219 74,240
3 Boston Housing Authority, MA 184 117,663
4 Virgin Islands Housing Authority 160 836
5 Newark Housing Authority, NJ 134 15,470
6 Jersey City Housing Authority, NJ 131 9,813
7 Housing Authority of the City of Los
129 43,488
Angeles, CA
8 New Bedford Housing Authority, MA 100 1,219
9 Metropolitan Development and Housing
68 7,655
Agency, TN
10 Housing Authority of the City and County
20 7,172
of San Francisco, CA
11 Johnson City Housing Authority, TN 16 211
12 Lake Linden Housing Commission, MI 7 24
13 Housing Authority of Benson, MN 3 8
14 Housing Authority of Throckmorton, TX 2 8
15 Oxford Housing Authority, NE 2 4
Totals 12,425 579,890
28